CTL Strategies recognised in 2021 Rankings of Chambers and Partners
CTL Strategies LLP has been ranked in the 2021 edition of Chambers and Partners.
Chambers and Partners, often regarded as the “gold standard” in the legal profession, is an independent research company operating across 200 jurisdictions. Chambers deliver rankings and insight into the world’s leading lawyers and law firms. The rankings are based on in-depth interviews with lawyers, in-house counsel of clients and independent experts.
The Guide remarks that the “firm has a significant focus on tax matters and earns considerable market respect in this regard. Its experience includes tax litigation and corporate services. It is heralded by sources as “up-and-coming”.
Impounding Passports in Civil Claims – An Exploration of the Legislative Framework & Current Practice
by Nazaha Nasheed
The media often relays to us tales of crime suspects and law offenders becoming fugitives to escape the reach of law and jurisdiction of the country in which they conducted their illegal activity. Take Vijay Mallya for instance, the former owner of Kingfisher Airlines who fled India1 after defaulting on large sums of money to his creditors and facing serious accusations of money laundering. In order to circumvent such instances where wrongdoers potentially escape the jurisdiction by fleeing to another country, courts sometimes decide to impound the passports of such persons. However, in this article, I will focus mainly on the impoundment of passports in matters related to civil disputes without a proven debt, as this is a mostly unexplored area of discussion.
What does impounding a passport entail?
A passport is the most important travel document one could possess in the 21st century – unless you have a valid passport, your freedom of movement can be largely restricted when it comes to international travel. So what does it mean to impound a passport?
Black’s law dictionary defines “impound” as “to take into the custody of the law or of a court.” In order to impound a passport, Maldivian courts will usually issue an order alerting relevant authorities that the passport has been impounded, essentially imposing a travel ban on the passport holder for a duration deemed necessary by the court. It is not difficult to deduce the rationale behind a court impounding the passport of an offender who might flee the country to evade consequences of breaching the law.
Legislative Background to Impounding Passports in Maldives
The measure of restricting travel by impounding a passport is not an unfamiliar concept in Maldivian courts. It is necessary that we now explore the legislative background that gives Maldivian courts the legal authority to impound a passport in civil cases to understand how this discretionary power is applied in real life situations. As such, the courts mainly refer to two regulations in exercising this measure. Firstly, Section 2952(4)(a)(1) of the Regulation on Conducting Trials 6.0 (2003)3 stipulates that the Court can issue an order to prevent a defendant from fleeing the jurisdiction where the Court has reasons to believe the defendant might do so.
Secondly, Section 9(a) of the Regulation on Enforcement of Unsecured Judgment Debts4 gives the Court a discretionary power to issue an order impounding the passport of a debtor of a proven claim. Although Article 41 of the Maldivian Constitution5 provides for the freedom of movement and establishment of citizens, we can see that the legal framework of Maldives provides certain situations whereby this fundamental right to move freely can be restricted.
However, it should be stressed that impounding a passport is not a measure that can or should be taken lightly by the courts. As previously mentioned, it includes the limitation of a fundamental right afforded by the Constitution. Article 16 of the Constitution stipulates that a right or freedom guaranteed by the Constitution can only be limited through a law enacted by the Parliament, to an extent demonstrably justified in a free and democratic society. It would be prudent to also highlight here that Article 55 of the Constitution states that no person can be detained for non-fulfilment of a contractual obligation.6
Moreover, the Maldives is a party to international conventions such as the Universal Declaration of Human Rights7 and International Covenant on Civil and Political Rights8 which grants everyone the “right to leave any country, including his own, and to return to his country.” It is notable that Article 12(3) of the latter convention states that this right shall not be subject to any restrictions except those that are necessary to protect national security, public order, public health or morals or the rights and freedoms of others.
Hence, the qualification of such a fundamental right which is tied to the personal liberty and freedom of a person should always be carefully considered, especially when it concerns civil cases. Therefore, courts will have to adopt a balancing act of the rights of the defendant versus the rights of the potentially wronged when issuing orders to impound the passport of a defendant in a civil matter.
Impounding Passports in Practice – how is it done in Maldives?
It would now be useful to see how the implementation of this measure is practised in the Maldivian court system. When it comes to civil cases, this measure is frequently taken against individuals or directors of a company during the enforcement proceedings of a judgment debt against the company in which they are the directors. This power is granted to the courts through the above-mentioned Regulation on Enforcement of Unsecured Judgment Debts.9
This raises the question of whether this measure can also be taken against a defendant in a case where there is an ongoing claim, i.e. pendency of proceedings10, lodged against them but no existing or proven debt.
As the Regulation on Enforcement of Unsecured Judgment Debts by its very title discounts the idea, we can conclude that a Court cannot use Section 9(a) of said Regulation in a case that does not have a proven claim. That leaves us with the earlier mentioned Section 295(4)(a)(1) of the Regulation on Conducting Trials 6.0. On a prima facie and broad reading of the Section, one could argue that the Court could indeed restrict the movement of a defendant should it believe that the defendant in the case might flee the jurisdiction, regardless of the nature of the claim, i.e. not necessarily a claim involving an already proven debt or even in non-monetary claims.
This was the approach adopted by the High Court in the case of Razman Bin Bujang v Icon Computers Maldives Pvt Ltd11 (“Bin Bujang case”), whereby it decided to uphold the decision of the lower court in impounding the passport of a Singaporean national Razman Bin Bujang in a case filed against him, Scanpower Maldives Pvt Ltd and Scanpower International Pvt Ltd12. Although the substantive case was still ongoing and the claim against him had not been proven, the High Court decided that the lower court was correct in impounding Bin Bujang’s passport as he was likely to quit the jurisdiction of Maldivian law prior to a decision being passed in the substantive case13, i.e. before the Court determines which party has to bear responsibility for the claimed amount. The basis for the High Court in upholding the decision of the lower court to impound the passport was seemingly centred on the fact that the defendant in the substantive case is a foreign national14 and Maldivian courts would not have the jurisdiction to review the substantive case should he quit the jurisdiction. It is noteworthy to mention here that no similar case law could be found that involved the impounding of the passport of a Maldivian citizen during the course of an ongoing civil claim without a proven debt.
Contrast the above case with the recently issued judgment by the High Court in the case of Mohamed Abdulla Ahmed Al Mursi v Prosecutor General’s Office15 (“Al Mursi case”). Although the subject matter of this case involves a criminal allegation and therefore the legal authority that empowers the court to impound the passport in this case varies from that of civil cases, it is worthwhile for our discussion to take a glance at the method and rationale adopted by the High Court in reviewing the decision of the lower court to impound the passport of the appellant – an Egyptian national.
In the case of Al Mursi, the High Court held that the fact that the appellant was a foreigner and therefore had resources to take up residency in a country outside of Maldives is not by itself sufficient reason to conclude that he was about to flee the jurisdiction, considering no other evidence supporting such conclusion was submitted.16 In coming to this decision, the High Court reflected on recent Supreme Court cases such as Afiya Moosa v Prosecutor General’s Office17 and Prosecutor General’s Office v Abdulla Jihad18 which includes discourse on the subject of impounding passports of accused persons in criminal cases.
It is noteworthy that in the above-mentioned criminal cases deliberated by the High Court and Supreme Court of the Maldives, the matter of restricting travel was considered very seriously and the Court laid down tests19 and factors20 to be considered by courts before issuing an order to impound a passport. Furthermore, in the case of Prosecutor General’s Office v Abdulla Jihad21, the Supreme Court held that the decision of the High Court to release the passport of the accused was proper.
Additionally, the Criminal Court’s decision22 to release the passport for medical reasons as cited by Ali Waheed, a man charged with seven counts of sexual violence, further purports the idea that courts are extremely reluctant to restrict the travel of an accused person even in criminal cases. In this case, the Court even went so far as to allow Ali Waheed to place a guarantor23, whereby legal action could be pursued against the guarantor should he flee the jurisdiction. We can therefore establish that the standard of proof required to prove that a person is about to flee the jurisdiction is rather high in criminal cases.
Consequently, it is bizarre to juxtapose these decisions with the earlier mentioned case of Bin Bujang – why are the courts seemingly more lax when it comes to impounding a passport of a foreign national involved in a civil claim, when more stringent approaches have been adopted in consideration of taking the same measure in cases involving serious criminal charges? Does the Court currently adopt a discriminatory approach against foreign nationals24 when considering the restriction of travel in civil disputes filed against them? The legal authority on the matter of impounding passports in civil cases are limited and hence, we are unfortunately forced to surmise that the approach and reasoning adopted by Maldivian courts in restricting the freedom of movement of parties in civil cases are at present, unclear and arbitrary.
Other jurisictions
We can now briefly glance at how other jurisdictions tackle this issue. In the case of Satish Chandra Verma Ips vs Union of India, the Supreme Court of India issued a daily order25 that stated that the Court was of the opinion that pendency of proceeding is not a sufficient ground to prevent the appellant from traveling abroad.26 The appellant, whose passport had been impounded by the lower court, argued that he was not involved in a criminal case and the departmental enquiries and the cases stemming from challenging the enquiries were still pending and not decided upon.
In the UK, most of the cases that deliberated on the issue involved family law proceedings and granting of ancillary relief. The courts were still extremely careful in considering the limitation of the fundamental right to freedom of movement granted to an individual. As such, in the case of Re P (Discharge of Passport Order)27 decided by the Family Division of the High Court of UK, Cobb J stated that:
“The removal of an individual’s passport, even on a temporary basis, be that of an adult or child, is a very significant incursion into the individual’s freedom and personal autonomy. It is never an order that can be made lightly…”
The above illustrations support the idea that it is extremely rare for courts from other jurisdictions to even consider impounding the passport of an individual in pending civil proceedings due to what can only be assumed to be an absurdity in the very notion itself.
Areas to be Addressed: Gaps in the System
The current ambiguity of the Maldivian law and court system in determining at what stage a passport should be impounded in civil matters and what factors should be taken into consideration when doing so gives rise to a number of issues, some of which are contemplated below.
As previously discussed, Article 16 of the Constitution provides that only a law passed by Parliament can limit a freedom or right provided for by the Constitution. For criminal cases, the Criminal Procedure Code28 stipulates the instances in which the freedom of movement can be restricted through an order issued by the court. However, there is currently no law passed by the Parliament that gives the same authority to courts in civil cases. As mentioned above, the courts currently derive this discretionary power from either practise or regulations, origins of which precede the Constitution itself.
In my opinion, the validity of curbing a fundamental right or freedom through practice or regulation is questionable and contravenes Article 16 of the Constitution. Fundamental rights and freedoms such as the freedom of movement29 and not being detained for non-fulfilment of contractual obligations30 cannot be curbed through a regulation – especially under old regulations such as the Regulation on Conducting Trials 6.0 and the Regulation on Enforcement of Unsecured Judgment Debts, which were both given validity retrospectively31 under the General Regulations Act32.
At the very least, the General Regulations Act does not have a provision that empowers the aforementioned regulations to qualify a fundamental right or freedom. Therefore, it cannot possibly meet the requirement set in Article 16 of the Constitution. Consequently, it is crucial to wonder how the courts are currently entitled in issuing orders to impound passports and restricting a fundamental right when it comes to civil cases.
We have seen how in the case of Bin Bujang, the passport of a foreigner was impounded in an ongoing claim. The implications of such a decision should not go unnoticed or be taken lightly. Such precedents can open up the opportunity for parties to abuse the court process by lodging frivolous cases in an attempt to restrict the defendant’s right to travel. This might lead to a court encroaching upon an individual’s personal liberty without justifiable grounds. As a result, such decisions have the potential of being in violation of human rights and international conventions ratified by the Maldives.
One could hope that the Civil Procedure Bill in Parliament right now might offer a solution to the dilemmas caused by the vagueness and lack of rules in this area of law. Remarkably, the Bill submitted to the People’s Majlis33 currently does not address situations or rules by which passports can be impounded in a civil proceeding. Therefore, we can sum up that there is a strong need for clarity in the rules and factors to be considered by Maldivian courts in impounding passports regarding civil cases.
References
1 https://thewire.in/business/vijay-mallya-has-left-india-ag-tells-sc-notice-issued-on-loan-recovery.
2 Ref No. 2003/02 MJC (20 January 2003).
3 Page Number 213.
4 Translation of “Rahuneh Nuhimeney Saabithu Dharaneege Muaamalaaiythakugai Amalukuranveegothuge Gavaaidhu”.
5 Constitution of the Republic of Maldives, 2008.
6 One could argue that “imprisonment” can be read to include impounding a passport of a person so as to restrict their freedom of movement.
7 UN General Assembly, Universal Declaration of Human Rights, 10 December 1948, 217 A (III).
8 UN General Assembly, International Covenant on Civil and Political Rights, 16 December 1966 (Accession by Maldives on 19 Sep 2006).
9 Note 4.
10 An undecided lawsuit, the state or time of which is pending.
11 2012/HC-A/17 [9 April 2012] High Court of the Maldives.
12 Razman Bin Bujang was the majority shareholder in the company.
13 Note 11, para 2 (fourth line) of pg 7.
14 Note 11, para 2 (first line) of pg 7.
15 2021/HC-A/96 [31 March 2021] High Court of the Maldives.
16 Note 15, para 19.
17 2021/SC-A/08, [2021] SC 24.
18 2021/SC-A/04 [2021] SC 19.
19 Note 15, paras 23-29.
20 Note 14, para 24.
21 Note 15, para 51.
22 Press Statement by the Prosecutor General’s Office (11 Feb 2021).
23 Pg 5, para 2 of Press Statement by the Prosecutor General’s Office (11 Feb 2021).
24 A discriminatory approach against foreign nationals in such circumstances could be in violation of Article 17 of the Constitution, which provides for and includes non-discrimination based on national origin.
25 Daily order issued by Supreme Court of India on 9 April 2019.
26 https://indiankanoon.org/doc/93755546/.
27 [2020] EWHC 3009 (Fam).
28 Section 75 of Criminal Procedure Code (Law Number 12/2016).
29 Note 5, Article 41.
30 Note 5, Article 55.
31 The Act was passed in 2008 after the current Constitution came into force and introduced the requirement of regulations being empowered under a parent law passed by Parliament, pursuant to Article 94.
32 Section 2 and Annex 2 of the General Regulations Act (Law Number 6/2008).
33 Civil Procedure Bill (Bill Number 19/2019/ބ-54).
Insight: Barefoot Noomadi Hotels v MIRA
Are OTA commissions under the Merchant Model subject to WHT?
In the case of Barefoot Nomadi Hotels v MIRA1, the Tax Appeal Tribunal (“TAT”), by unanimous decision, held that commission payments made to Online Travel Agencies (“OTAs”) operating under the Merchant Model are not subject to Withholding Tax (“WHT”) under Section 6 of the BPT Act2.
The Tribunal deliberated on the taxability of the commissions charged by Agoda and Expedia – both OTAs, operating under the Merchant Model, and found that such payments do not fulfil the conditions that trigger WHT as set out in High Court’s decision in Jetan Travel Services v MIRA3 and that the MIRA’s inconsistent application of the tax laws contravenes Article 97 of the Constitution.
Facts and Observations
A circular to charge tax and a tax ruling to abolish tax
The MIRA issued a Circular4 (the “Circular”) on 28 December 2016 instructing taxpayers to charge WHT on deemed OTA commission, irrespective of the model that the OTA operates, effective from 1 January 2017. This decision was later reversed by MIRA in November 2017 by issuing Tax Ruling B625, which suggests that OTA commission will only be subject to WHT where the OTA operates under Agency Model, effective from 1 December 2017.
Questions on the scope of “other fee or commission”
The MIRA carried out a WHT audit of Barefoot Noomadi Hotels and charged WHT on booking commission payments made to Agoda and Expedia – OTAs – under Section 6(a)(4) of the BPT Act, on the basis that said booking commission falls under “other fee and commission not constituting income from employment”. Although the audited period was from July 2015 to January 2018, additional tax was only assessed for the period from 1 January 2017 till 30 November 2017. (that is, from the effective date of the Circular, until the effective date of Tax Ruling B62). Upon the audit decision being disputed by Barefoot Noomadi, the MIRA vide the Objection Review Report refused to change MIRA’s position in the audit decision.
Barefoot Noomadi appealed MIRA’s decision to the TAT on the grounds that the MIRA imposed WHT on the transactions in dispute – payments made to OTAs – in contravention to Section 6(a)(4) of the BPT Act. Barefoot Noomadi argued that the scope of the term ‘commissions and fees not constituting income from employment’ as stipulated in Section 6(a)(4) is explained in Tax Ruling B256 and B627 and, according to Tax Ruling B62, commission payments made to OTAs are liable to WHT where such payment ‘is paid or becomes payable to the OTA by the tourist establishment’. Barefoot Noomadi contended that OTAs such as Agoda and Expedia operate under the Merchant Model and collect payment for rooms at the rate published on their respective websites. It was argued by Barefoot Noomadi that no commission payment was made by them to the OTA, nor were they liable to make such payment and as such, the MIRA’s decision to impose WHT on this transaction is in violation of Section 6(a)(4) and Tax Ruling B25.
MIRA’s inconsistency in application of the law
Barefoot Noomadi contended that the MIRA’s application of the BPT Act with respect to imposing WHT on payments made to OTAs that operate under the Merchant Model was primarily based on a Circular issued by the MIRA and is grossly inconsistent, as the application of ‘law’ in the view of the MIRA is only applied to a certain period within the audit, although the BPT Act remains unchanged during this period. In this regard, it was argued that the MIRA adopted conflicting positions with respect to application of the law over the audited period – July 2015 to January 2018 and this conflicting application of the law (by charging tax only for part of the audit period), violates Article 97 of the Constitution. Barefoot Noomadi further argued that MIRA’s actions deprived the equal benefit and protection before the law guaranteed under Article 20 of the Constitution. Referring to the Supreme Court’s decision in Mohamed Fahmy Hassan v State8, it was also argued that the MIRA’s arbitrary and selective application of the tax laws violates the rule of law, and any decision that violates the rule of law shall be considered void.
The MIRA, responding to arguments raised by Barefoot Noomadi, contended that commission payments made to OTAs such as Agoda and Expedia fell within the scope of Section 6(a)(4) of the BPT Act and Tax Ruling B25. Referring to the High Court’s decision in Jetan Travel Services v MIRA, the MIRA asserted that the elements of the transaction in dispute fulfilled the three conditions for a payment to subject to WHT: 1) a payment, categorically identified under Section 6(a), 2) the payment is paid or payable by a person carrying on business in the Maldives, 3) the recipient of the payment is a non-resident. The MIRA further argued that commissions paid to OTAs that operate under the Merchant Model fall within the scope of paragraph 4 of Tax Ruling B25 and that the purpose of the Circular on the subject matter was to clarify the tax treatment of commission regardless of the commercial arrangements between taxpayers and the OTAs. It was the MIRA’s argument that the purpose of the Circular was to clarify the application of Tax Ruling B25 as the MIRA had observed that many taxpayers failed to comply with the said Tax Ruling.
Held
Under the Merchant Model, no commission is paid or payable to the OTA
In their decision, the Tribunal opined that commission of OTA’s operating under the Merchant Model, do not fulfil the conditions that trigger WHT as per High Court’s decision in Jetan Travel Services v MIRA. The Tribunal expounded on this, observing that Tax Ruling B62, which amends Tax Ruling B25 clearly shows that a tourist establishment is liable to pay WHT on a commission payment to an OTA, provided such amount is paid or payable by the tourist establishment. With regard to commission payments made to OTA’s operating under the Merchant Model, the Tribunal found that Barefoot Noomadi was not liable to make any payment to Agoda or Expedia.
The Tribunal also noted that the MIRA has sent an email confirmation to Barefoot Noomadi, explicitly stating that WHT does not apply to commission of OTAs operating under the Merchant Model.
WHT treatment of the same transaction has been inconsistent
The Tribunal further observed that MIRA’s application of the tax law was inconsistent. The Tribunal noted that the MIRA, from 1 July 2011 to 1 January 2017 did not impose WHT on commission payments to OTAs operating under the Merchant Model, but had changed their position on taxation of such payment through a Circular. The MIRA, then reverted their position on taxation of such payments after issuing Tax Ruling B62. The Tribunal opined that, where a tax is imposed by a law, the MIRA is not empowered to levy such tax on a discretionary basis.
The Tribunal also observed that Section 84 of the Tax Administration Act the power to issue Tax Rulings – does not empower the MIRA to impose tax on a discretionary basis. The Members observed that Section 84 granted the MIRA the authority to amend the regulations and expound on tax principles. The Members opined that, as per Article 97 of the Constitution, the power to impose tax resides only with the Parliament, and MIRA’s exercise of the legislative function is ultra vires.
Our Comments
Application of WHT on OTA commission has been subject to much controversy for a long period of time. This has particularly been the case after taxpayers noticed that the MIRA’s application of the law changed upon the issuance of the Circular in question. The TAT’s decision in this case brings closure to this matter – at least for the time being.
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References
2 Section 10(b), ITA
3 Section 5, ITA
4 Section 27, ITA